Goldman will rebound

April 19, 2016 03:00 PM

Finding applicable shorts in a volatile market presents its own dangers; however the prospects for long-term growth potential equities in the banking/financial sector have been fraught with uncertainty. One such company, Goldman Sachs, is poised for a maintainable rebound, and should be differentiated from its competitors. 

New York-based Goldman Sachs global Investment banking firm provides investment banking services, trading and asset management. 

Its Investment Banking division handles mergers and acquisitions and underwriting (including its role as a primary dealer in the U.S. Treasury security market), distressed debt and commercial real estate lending. With the current market volatility, mergers and acquisitions and IPO business is down. However, Goldman Sachs’ diversified business provides sustainable growth in the upcoming quarters. 

In comparison to other lenders Goldman is not as attached to lending to energy based entities, which are under considerable stress because of the long bear market in crude oil and natural gas. 

Such energy exposure leaves other lenders primarily saddled with investment-grade-rated debt compounded by European banks using contingent convertible bonds with hefty coupon payments. Of course, Goldman can’t escape some of this debt but is distinguishable as its credit- worthiness is likely a non-issue and it’s ripe with appreciable dividends as a substantive benefit from credit spreads contracting the yield curve (between the short and long-term Treasuries).

Goldman’s 2015 Q4 earnings fell 71.8% to $574 million or $1.27 per share versus $2.03 billion or 4.38 per share. The earnings decline was largely partially because of its long overdue civil settlement of $5.1 billion, from the 2007 banking crisis. Its net revenue fell 5.4% to $7.27 billion, topping the consensus of $7.07 billion.

Goldman’s primary income, almost 70%, is derived from its trading and investments divisions focusing on fixed income, commodities and merchant banking; while its asset management divisions provide investment advisement and securities services offering financing and securities lending to its large intuitional clients. This is where Goldman’s ability to extend shorts and significant money to hedge funds, large institutions, and high frequency traders will be enhanced by such increased market volatility generating significant asset potential in the current market.

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